Re: [asa] A parable of three investors

A little more serious: the problem with this as an analogy is
that securities and commodities markets are established by people according
to certain predetermined legal rules. Those rules function as sort of
epistemic presuppositions concerning what is "true" about the market in
question. Given those presuppositions, one can look at historical data and
discern patterns that will likely obtain in the future. One such pattern
may be that companies with high p/e ratios tend to be riskier investments
than those with low p/e ratios, or that commodities tend to serve as a hedge
against bear markets. But these are just tendencies, which may or may not
obtain with regard to any given investment, or which may be overriden by
other factors (such as "destructive" technologies or unforseen world
events). So, even owning all the important presuppositions, the best one
can do is suggest opportunities and risks regarding the future of the
markets. There is no real positivism in investing.

Trying to port this over to Biblical interpretation doesn't work because the
argument is precisely about the presuppositions. We aren't given
predetermined legal rules about how to interpret the text. We have to
develop those rules based on experience, reason, history, etc. The question
about how to relate different sorts of extrabiblical evidence to the text is
a question about presuppositions, not a question of a applying a
known principle derived from more foundational presuppositions (such as
the principle that companies with higher p/e ratios tend to be riskier
investments). Moreover, as with investing, even when the relevant
presuppositions are reasonably clear, the principles derived from them
usually are guides rather than firm rules. Sometimes the Googles of the
world turn out to be good investments despite conventional wisdom about p/e
ratios.

On 10/28/06, David Opderbeck <dopderbeck@gmail.com> wrote:
>
> Interesting allegory. But let's add another twist: let's say all three
> of the investors were dead wrong. None of the data was adequate to predict
> that a massive war would break out in the middle east which would roil the
> commodities markets. Nor was the data able to predict a new breakthrough
> energy technology based on nuclear fusion. It was the same story as many
> other "disruptive" technologies, like automobiles, personal computers, and
> the internet. The conventional data weren't up to the task of predicting
> the "creative destruction" the new technology would bring, even though all
> the contemporary analysts were quite familiar with Josehph Schumpeter.
>
> But, a fourth investor -- let's call him Bill -- had a hunch that all the
> talk about the old commodities was wrong. Bill didn't spend much time
> studying data, but he just had a "feeling" that all the conventional wisdom
> must be wrong. He played his hunch, investing his nest egg in the penny
> stock of Fusiontech, Inc., a company doing research into nuclear fusion.
> Bill's friend's were horrified -- *everyone* knew that the handful of
> "scientists" who claimed to make progress towards man-made nuclear fusion
> were at best quacks and at worst liars. Roll the dice with computer tech
> stocks, or play it safe with proven commodities like oil, Bill's friends
> said. Bill didn't listen to reason.
>
> Bill is now one of the wealthiest men in the world, having eventually
> bought up most of the shares of Fusiontech before its record-breaking
> IPO. Ken died in the middle east war a few years ago. Ken's heavy
> investment in oil wiped out all his savings and he took a high-paying
> consulting job in Baghdad to make up the loss. He was captured by
> insurgents and beheaded when the third battle for Baghdad started. Henry is
> in jail for fraud, but not because of Enron. Henry's interest in Enron led
> him to study the oil industry in an evening MBA program, after which he took
> a job as an environmental consultant at a big oil company. He was caught
> falsifying data about the environmental impact of oil drilling in Alaska,
> along with dozens of other big oil exectuives. Bob did ok -- he now works
> as a VP of Technology at Fusiontech, Inc., which holds the patent on the
> method used to produce energy safely and economically using nuclear fusion.
> All of the stock brokers involved now sell real estate or life insurance.
>
>
> On 10/28/06, Glenn Morton <glennmorton@entouch.net> wrote:
> >
> > Consider several investors, each with a small amount of money to
> > invest. In
> > the late 1990s, they all go to the same investment broker who presents
> > an
> > investment strategy to them (interpretations of what the broker thinks
> > will
> > happen in the future). The strategy has its particular risks of being
> > right
> > and being wrong. The broker likes a set of mutal funds which have had
> > good
> > track record and good management. They are in various broad areas of
> > the
> > economy, banking, international, commodities, transporation etc. They
> > are
> > good solid but not stellar investments. They will ensure the money
> > grows,
> > but not necessarily outperform the market.
> >
> > The first guy, named Henry, who is the youngest, listens to all the
> > research and logic of the broker. But he decides that such research is
> > really designed to prevent him from getting to where the real money is
> > to be
> > made. Indeed, he thinks there is a grand conspiracy on the part of the
> > brokers to maintain the fiction that brokers know what they are doing.
> > Brokers hold their beliefs in order to hold their jobs. This grand
> > conspiracy uses other people's money to ensure that the conspirators
> > make
> > money, enabling the conspirators to prevent others from making money and
> > to
> > prevent others from publishing on how to make money.. Thus, this young
> > decides that research and sound logic isn't useful in investing. He
> > knows
> > that if he invests with the right sort of people, people who are good,
> > then
> > he will make money, he will make money. So, Henry ignores all data, all
> > research and embarks on his own investment program--one given him by his
> > friend, the preacher. Enron was the preferred investment vehicle.
> > Henry
> > heard that the guy at the top of this organization was the son of a
> > preacher, so he must be the right sort of guy to invest with. Henry
> > gathered
> > lots of followers with him and they all invested in Enron. Investments,
> > require having a the approved set of beliefs in order to be successful.
> >
> > The second guy, named Bob, is appalled at the willingness of this
> > younger
> > sort of fellow to ignore data.The broker lays out why he should not
> > invest
> > in technology (this is the late 1990s). They are over priced, the P/E
> > ratios
> > are too high, they don't' make profits etc. These things are poised for
> > a
> > fall, the broker says. But Bob likes the tech stocks and doesn't want
> > the
> > broker's scenarios to be right. He wants this scenario to be wrong, to
> > be
> > false. He doesn't want the predictions of the models to match reality.
> > Bob's friends tell him that he shouldn't be that way,but he keeps
> > muttering
> > something like, the broker's scenarios are not supposed to tell us about
> > the
> > future or reality. They are merely designed to tell us how to
> > behave--how to
> > invest. They are rules of the road only, not the road. They don't' tell
> > us
> > anything factual because they are predictions. They can't be included in
> > the
> > world of facts.. Also, Bob thinks, it really doesn't matter if it is
> > true or
> > not; it is a great story of doom and gloom for the tech stocks and it
> > makes
> > a great allegory of hard times. .This scenario is merely a way for the
> > broker to tell us about behavior, not true returns on capital employed
> > or
> > what industries will increase in share price over the next several
> > months..
> > With Bob, the broker offers his best strategy, one which the broker
> > recommended, which he firmly believed would make money for the
> > client. Bob
> > politely declines to invest with this strategy. Bob said, "nothing you
> > say
> > is meant to match the future, indeed, the future can't be predicted. So
> > what
> > you are doing is offering grand myths about the future. Knowing this,
> > and
> > knowing that myths are never meant to be taken seriously as history, I
> > want
> > to use another strategy." The broker, of course, says, "But if you use
> > another strategy, you will lose your money." And Bob, says, "I don't
> > like
> > your strategy, I want it to be wrong so I want to invest in things that
> > makes your scenario false" So Bob invests heavily in tech stocks
> >
> > The third guy, named Ken, listens to the broker's claims about the
> > future,
> > he doesn't like everything he hears, but figures that if he is going to
> > make
> > money, he better deal with the data--high P/E values, lack of profits in
> > the
> > tech group. But he tells the broker he wants to invest in oil because
> > there
> > will be a shortage coming in the next few years.
> >
> > The broker is apalled. The broker points out that oil is a lousy
> > investment;
> > oil is so, so, so old industry, indeed dirty industry. It isn't the new
> > economy; it is a dinosaur industry. Look at all the severe price
> > collapses
> > oil has had over the past few years. No one else he knows in the oil
> > industry thinks there will be a shortage. Ken shows him some articles,
> > he
> > agrees he should avoid tech stocks save as a short play and Ken agrees
> > to
> > invest some money in the mutual funds. On oil, eventually, Ken wins the
> > broker over to his position by showing the broker lots of data. Oil will
> > go
> > up and if one invests now, he will make money. Even the broker invests
> > that
> > way. Ken doesn't LIKE the fact that oil price will rise, he wishes it
> > weren't so. But one better deal with reality if money is to be made.
> > Between
> > the two of them, Ken and the broker, they created a scenario they didn't
> > like, but which made money and matched reality
> >
> > Henry lost it all, but he didn't have to accept that silly research,
> > which
> > made him very happy. He also had lots of followers.. Bob lost 75% but
> > when
> > last seen was still preferring to invest in things which would not match
> > reality because reality is so boringly and antiquatedly concordistic.
> > Who
> > would want that?
> > Ken, the concordist, and the broker, both of whome wanted the strategy
> > to
> > match reality, made money.
> >
> > I would ask, when faced with a choice, one interpretation makes the
> > Bible
> > capable of matching archaeological and scientific reality and the other
> > demonstrably makes the Bible false, why on earth do we WANT to chose the
> > one
> > which makes it factually false? Do we like investing in theories which
> > makes it false? I suspect we too often do. For the life of me, I can't
> > figure out why. If one applies such a strategy to life (like investing
> > where bad decisions lead immediately to great pain), one will lose
> > money.
> > Maybe we don't have any real skin in the game (there is that word 'real'
> > again)
> >
> > I just find it so difficult to understand why people prefer the Bible to
> > be
> > false to having at least a hope that it contains some history--real
> > history.
> > As I said to Iain in the discussion about Yeled in Chapter 5. Atheists
> > too
> > want the Bible to be false. For us to play their game is insanity. Like
> > Henry or Bob
> >
> >
> > glenn
> > They're Here: The Pathway Papers
> > Foundation, Fall, and Flood
> > Adam, Apes and Anthropology
> >
> > http://home.entouch.net/dmd/dmd.htm
> >
> >
> >
> >
> > To unsubscribe, send a message to majordomo@calvin.edu with
> > "unsubscribe asa" (no quotes) as the body of the message.
> >
>
>

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Received on Sat Oct 28 17:22:11 2006